S. Korean bonds flat on mixed economic data

The South Korean bonds were trading nearly flat on Friday after receiving mixed bag of economic data. The 10-year bonds yield, which is inversely propositional to bond price fell 0.22 pct to 1.795 pct and 3-year bonds yield rose 0.28 pct to 1.454 pct by 0550 GMT.

The South Korea's industrial production tumbled 2.2 pct m/m in March, against expectation of 0.1 pct m/m rise, from up 3.2 pct in February. On annual basis, it declined 1.5 pct in March; investors were waiting for a rise of 0.8 pct, as compared to prior 2.2 pct. On the other hand, in March the index of all industry production rose at steady pace of 0.6 pct, marking its 2nd successive monthly gain. Similarly, the March retail sales rose 4.2 pct m/m, from down 1.5 pct in February.

Moreover, the South Korean bonds have been closely following developments in oil markets because of their impact on inflation expectations and stocks prices. Today, crude oil prices tumbled after snapping to 2016 high on profit booking and a looming rise in Middle East output, on the other hand weak greenback and falling United Sates output are still offering support. Meanwhile, the International benchmark Brent futures trading flat at $47.77 and West Texas Intermediate (WTI) dipped 0.02 pct to $46.02 by 0550 GMT.

We expect the BOK to cut in May, after holding its benchmark at a record low 1.5 pct for 10-months. This is supported by the increasing speculation in the market that the BOK may cut borrowing costs that are already at a record low, pushing bonds prices further up.

Meanwhile, The Korea Composite Stock Price Index (KOSPI) fell 0.39 pct at 1,993.08 points by 0550 GMT.